How do employee stock options
work? This is an important consideration when choosing between
different job offers and a good skill for every student to have.
We follow Barbara Arneson through her analysis of company metrics
to determine the worth of her different stock option plans.

What is the number of shares outstanding at BioGene as of May 31, 2006? What is its current PE ratio? Why do you think it is higher than the current average of other bioinformatics companies (hint: consider the recent annual growth rates of revenues and profits)?

What is Barbara's percentage ownership in each firm?

Compare the firms in 4 years (i.e. 2010) when the stock options will be fully vested. Assuming Barbara remains employed until that time, which stock option offer is better? Make sure to include the cost of the stock options and state all critical assumptions.

In your opinion, which of barbara's stock option packages
is better? Why?

Practice negotiating with the other company's offer within
your group.

What other factors (in addition to the stock options) should
Barbara consider?

Main
Case Study: Barbara Arneson: Which job?
Barbara Arneson must decide which job offer to take. With all other factors being equal, she is now down to a decision based on the value of the stock options offered by each company. One company is a public company with easily gathered data on the financial status of the company. The other offer is from a start-up company which has only financial projections.

How
Stock Options Work
An introduction to employee stock-option programs and how
they work. Covers major principles such as strike price vs.
market price, vested and exercising options and the basics
of how dilution works within a company.